The Ethiopian government’s growing reliance on foreign loans is posing a serious risk of economic collapse, a paper presented Friday by a renowned local economist says.

“Take for instance China, which has loaned over $17 billion to the Ethiopian government for infrastructure projects. Our total investment is 40 per cent of GDP. Our savings rate is between 10-20 per cent of GDP. We import $13 billion and export $3 billion. They (China) are the ones who are filling all these deficit gaps,” said Alemayehu Geda, economics professor at Addis Ababa University and London University.

He was presenting a paper in Addis Ababa on Foreign Direct Investment (FDI) to Ethiopia and credit financing. This was at the launching of a two-year series of public dialogues by Forum for Social Studies – a local civil society group partially financed by the United Kingdom’s Department for International Development (DfID).

“What will happen if they (China) stopped such funding tomorrow? What if for instance the Chinese government tomorrow says sell for me Ethio Telecom or sell to me Ethiopian Airlines or give me some share or buy my airplanes or I will stop such credit financing? The country will collapse, I guarantee you,” he said.

“About 77 per cent of our imports are strategic imports. Fuel only accounts for a 25 per cent share of the total import bill. As a result, even if we want to decrease imports, we can’t. Ethiopia needs to minimise its strategic vulnerability,” Prof Alemayehu said, mentioning as an example how Koreans avoided such dependency risks when they used to source 75 per cent of their imports from the United States some decades ago.

Vulnerability

“The Koreans came out of such vulnerability risks after analysing their situation properly, discussing the issue with their intellectuals and setting long-term plans,” he said, advising the Ethiopian government to invest in quality education, quality skilled labour and have in place well-designed policies.

Official estimates show that Ethiopia’s economy has been growing by double digits every year for the last decade and has now reached $54 billion, but some independent scholars doubt this.

In his paper, Prof Alemayehu indicated that Ethiopia’s external loan includes $17.6 billion from China for various infrastructure constructions, around $3 billion from Turkey and close to $1 billion from India.

In addition, he pointed out, from 2012 to 2016 the country had taken loans totalling close to $6 billion from the World Bank.

Last year, Ethiopia also accessed a Eurobond worth $1.5 billion.

Statistics also show that in addition to loans some $3 billion more annually comes to the country in the form of donor aid.

Insignificant

When it comes to the FDI coming from China, India and Turkey, close to 71 per cent of their investment in Ethiopia is in the manufacturing sector.

Meanwhile the results in terms of job creation, technology transfer and export contribution is insignificant for Ethiopia, which has over 90 million people dominated by youth with a 16 per cent unemployment (the official rate), according to Prof Alemayehu.

Between 2003-2012, there were 93 Chinese companies which had reportedly invested $600 million creating around 69,000 permanent and 79,000 temporary jobs for Ethiopians, but with very little contribution to technology transfer and foreign currency generation through exports.

According to the scholar, during the same period Indian investments in Ethiopia created 24,000 permanent and 26,000 temporary jobs while 341 Turkish companies operating in Ethiopia created a total of 50,000 jobs.

Though much is talked about Chinese investment growing in Africa, the Chinese have less than 4 per cent of total share of FDI in Africa; out of the total of Africa’s $554 billion FDI inflow in 2010, the majority of the investments were from Western companies, claimed, Prof Alemayehu.
Slowing growth

Prime Minister Hailemariam Desalegn this week told local media that Ethiopia’s GDP growth will not be expected to grow by double digits this year and will likely drop to around 7 per cent. However, his special economic adviser, Dr Arkebe Equbay, reportedly was telling Bloomberg media that the country is expected to grow by 11 per cent this year.

Now the government is faced with the puzzle of why the economy is not performing as well as previous years despite all the generous incentives to investors and huge infrastructure investments dependent on local and external loans.

And that is not to mention other priorities that call for attention, like feeding millions in drought-stricken regions as well as dealing with political unrest in Oromia region and Gondar in Amhara region.